Schonfeld Fires 15% Of Traders, Blames Fast, Greedy Robots

The very special gift presented to 50 prop traders at Schonfeld Securities in advance of the celebratory July 4th holiday weekend... was a pink slip. The palliative reason given to these newly unemployed by founder Steven Schonfeld: it is all the fault of "black boxes, stat arb and high frequency trading." Welcome to the new paradigm - you are now all redundant. Only robots are allowed to trade with robots. But. But. We thought they only provide liquidity (er, viscocity - the specific gravity of motor oil is 0.8). Full letter below.

‘On December 5, 1988 we started Schonfeld Securities. Very soon after, we started hiring prop traders, and many years later formed “Opus Trading Fund”.

Prop trading has always been and will always be an extremely important part of our business and certainly the one that is closest to our hearts. The best Schonfeld traders will always have a place to trade and the capital to maximize their earnings potential. We are committed to them and will always strive to provide an environment for them to succeed. Sadly, however, we are re-thinking the notion that less skilled and less successful traders can be here forever without producing sufficiently for themselves and the firm.

For over 21 years we have always done everything we could, with the traders' best interests in mind, to provide careers and opportunities for our traders.

We have always cared more than you could imagine for your careers, happiness, well being and future.

We truly admired many of your passions for trading and for the markets. Over the years we have stood by you and you have stood by us as well. There has been real loyalty on both ends and don’t ever think we took your loyalty for granted for one second.

Bull and bear markets come and go. Good trading markets come and go. But unfortunately, our vision of the future of trading has changed. It is getting much tougher for traders to make a living or get by. The direct competition from black boxes, stat arb and high frequency trading which continues to grow at exponential rates is here to stay and has caused us to change our outlook for lesser skilled traders.

Based on the above competitive changes to the trading arena, we feel we are doing an injustice to both our lesser skilled traders and the firm by keeping them around. At best, they will barely get by and that’s not why we are in his business or what they should be here for.

Unfortunately the career of trading is not a good option for lesser skilled traders going forward. We will be letting go many of these traders over the next 6-12 months. It is with deep regret and the hardest thing we have had to do since the inception of the firm in 1988. It truly saddens us to do this, but we are doing the traders who will not be making a living going forward a favor, so they can venture into different careers.

It is even more painful since many of you have been so loyal and really good guys.

To those of you that we ultimately let go, we deeply apologize but whether you understand it immediately or not, it truly is best for you.

After discussions with the managers and exhaustive quantitative research our objective will be to reduce the number of traders we have down to those that we believe will make a great or very good living trading for years and years to come with the necessary skills needed.

The traders who are newer to trading will be given some extra time to potentially have their skills stand out. The days of a trader making a living by generating $50k to $75k of adjusted gross annually are over. There is room for only highly motivated, skilled and developing traders that can add value to each other and the firm.

Once again, we wish it was different and are extremely sorry for those that don’t make it.

Who knows, maybe one day they'll be tearing down all those skyscrapers in Manhattan and replacing them with the equivalent of those computerized traffic control boxes you see on street corners. Humans need not apply.

They're basically getting rid of their minor league and going with their best players. Good luck in a few years when those "best players" become former best players and there's no pool to draw upon for replacements.

Another fine example of minute to minute thinking. I'm not really blaming them. It's the condition of the (GoM) water they're swimming in that dictates their strategy. Productivity is being elevated at the expense of long term growth.

Well if they decided to trade FI or derivatives they might have had a chance of survival. Equities trading is too crowded; too many people chasing a limited # of instruments, while OTOH debt is perpetual, unlimited and always in need of a good churn. Derivatives even more so where the market is literally unlimited in volume; but nooooo everyone and their mothers want to "trade stocks"; well fuck it son; there is just too many of ya.

Well if they decided to trade FI or derivatives they might have had a chance of survival. Equities trading is too crowded; too many people chasing a limited # of instruments...

The better HFTs have long since started building for trading in options, FX and other markets. Any market that has an electronic feed, granular historical data for back testing, and lots of volatility will do. There is only one market condition that kills them: low volatility, low volume, trading-averse but investment-oriented. That is, if everyone else stops trading, and starts investing with ultra-long time horizons (5+ years), they can't thrive. They'll survive, but it will get increasingly grim for them the longer everyone turns into and stays with Buffett-like patience on position churn, or simply walks from the market and sits on cash earnings.

Algos, HFTs and the like are a well-deserved bitch slap across all human market participants trying to trade rather than invest in markets. You don't necessarily need regulations to drive the black boxen out; returning to the fundamental investment purpose of markets by the majority of human participants and concomitant investment behavior is sufficient to tone down the black boxen, and what little you give up to them on any multi-year round-trip on a position should be rounding error.

I'm having a difficult time shedding many tears for unsuccessful traders. There must be a million do-it-yourself traders falling by the wayside every day and nobody sends them a sad letter...more likely their wives are loudly berating them in the background.

Soon there will be no Human Traders left. Including the Floor of the NYSE. Wall Street has effectivly eliminated themselves. The HFT Computer does not need a Salary, a Bonus, Health Insurance, Pensions, Stock Options and most important the HFT NEVER LOSES MONEY.

Good by Wall Street you have been replaced by a Computer.

Yes, total Wall Street Greed. Now the Big Firms will not have to share even a penny with Traders. They will keep it all themselves.

I am reminded of a quote from Moe Green in "The Godfather 2." "This is the business we've chosen." It's the peril of every trader. If you hang around this business long enough there are really only three options: A) You make so much money you retire early and go do something else, B) you get too old to hack it anymore and receive a carefully worded e-mail from your boss telling you so, C) you become management, and one day it's you that becomes the evil prick telling the facts of life to some guy who's on his way out the door...

At least when the computers fire Stephen Schonfield they won't feed him some bullshit line like "It is even more painful since many of you have been so loyal and really good guys."

They will be sincere in their comments. "It's all about the money and in regards to your future we really don't give a damn. The exit is down the hallway on the left. Leave immediately or a robot guard will vaporize you. "

Looks like another opportunity for Obama to bailout a beleaguered group - traders. Why not? He has bailout out auto workers, construction workers, teachers, firefighters, and police officers. Perhaps the administation could step in and subsidize these jobs or could establish some re-training programs. Krugman could write another impassioned plea to bail out another group. Save the traders!

Fundamental problem: Trading doesn't generate anything that someone else wants to buy unless you are facilitating access for those who don't have alternatives.

When everybody wins in a big casino the casino will eventually get very crowded, very competitive.

It is an evolutionary process, survival of the fittest.

Perhaps these folks can find work in product production. I have a few product ideas that should sell if the work is done.

A few decades ago, I had a fantasy about a vacuum cleaner that used a cyclone instead of a bag because I knew all about cyclones. But the blower it would require would have to be invented as well and the whole thing would be heavy. Forget about it- it would be impractical.

Then during the 80's what should turn up but a vacuum cleaner made out of plastic by a fellow named James Dyson.

And there are several others, but I pursued the easier energy consuming job I was in rather than the potential useful procuct.

Here is my favorate- Hollandaise Sauce. Think Eggs Benedict for breakfast. It is not easy to prepare the real thing. It takes practice and some skill. Even some better quality resturants produce lousy imitations.

A more or less automated system, that would allow an unskilled person to prepare the real thing could be widely sold. And with development perhaps sold to some of the semi fast food big markets.

How long will it be until I can get really good good Hollandaise sauce at the cheaper resturants in my area?

Over the years we have stood by you and you have stood by us as well. There has been real loyalty on both ends and don’t ever think we took your loyalty for granted for one second.

But now you are useless to us so get lost.

There is room for only highly motivated, skilled and developing traders that can add value to each other and the firm.

But we will get rid of them as soon as we have an even better AI. Who wants to have anything like a business model, desks, and office rental expense when a few microchips and some electricity will do. It will be just me and my computer and I will be rich. How I love the American Dream!

The problem is so big individuals cannot wrap their mind around it. It is not necessary to understand the problem in its entirety;

Everyone must agree on objectives before beginning. All that is necessary is to not rule out the future;

Markets cannot function without shared parameters, like GDP, to measure outcomes. Investors only require a portfolio of unrelated investment opportunities, none of which rule out the future. Investment begins with shorting the past;

Directly altering the structure of Big Government and Big Corporation is required to proceed. No one is forcing anyone to get in the car and go shopping to feed the multinationals;

There is no start-up capital because the global economy is awash in debt. There is a significant population that refused to breed efficiently as demanded by the multinationals and implemented by the nation/states.

The law follows behavior, informally at first, and then formally. If you lead, the banks will have no choice but to follow. They can only exist if they lend. Over time, capital has no choice but to chase talent on the margin. Talent cannot live within government or corporation for long, because it requires individual liberty to adapt. Only an independent community can provide talent, and only small business can consistently employ it.

Communities require an independent bond facility, and small businesses require an independent stock facility. Communities require circulation, travelers, which is a function of wage/rent, which is completely variable, and regulation of diverse behavior, in a manner that produces positive symbiotic feedback loops. It’s up to the community to demand and protect its purely community interests, by keeping its distance from the multinationals and their controlling interests.

When the electron is found, the false-work is ready to collapse. The false-work, in this case, is control of energy distribution to enforce community compliance with multinational will. We only have virtual space to work with now, which means that all the participants will see the system for what it is, so that the necessary course correction must be made virtually, to roll out the solution.

Digital Analog Compilation

So, the multinationals, Johnson & Johnson, etc., have reached the limit of global efficiency, which means that wages must go up and property values down to re-ignite final demand, which may only occur within small business, because the multinational click gearing system cannot be altered in real time.

The multinationals will not increase real wages because that is a cost they cannot bear. They will allow other people’s property (*corollary to OPM) to fall underwater, so the controlling interests can grab that property for next to nothing (exit plan), with the intent of artificially withholding supply, to re-inflate demand, and reset the ponzi scheme. (use OPM to take OPP, leveraged by the Fed, with OPT, other people’s taxes, through “smart” technology – computer says: shop till you drop)

The gates are already locked. Old Lady Johnson, for example, naturally wants to replace government with non-profits more directly under her control, and feels she can out-wait the masses, sitting on tax-exempt property structured for the occasion. Have you checked the ownership structure of real estate companies lately?

What the ponzi proprietors still do not comprehend is the speed of adaptation among the economic slave population relative to the consumer population addicted to multinational products. Absent an agreement to roll out the analog economy through communities of small businesses, which must be freed from global family law certification, the multinational system will blow up, and the owners themselves will be exposed to the vicissitudes of nature, freeing the communities, in any case, to act in their own best interests.

The point of the Internet was transparency. It’s a stepping stone, not a destination. The simple-minded always occupy the center of power, to be replaced with the tides, which swap polarity at the event horizon. The laws of physics are simple, but the outcomes are unpredictable, and all the action is at the crest, where no carrier of non-productive assets can survive.

Going up in the elevator is no problem, just obey the signs. Free fall is the problem, and, contrary to mythology, jumping is only a temporary respite. Absent an agreement, the nucleus has no choice but to throw its outer shells under the bus, with exponentially increasing frequency, and that too is but a temporary respite.

The more exhaustive the search for the electron, the harder it is to find, unless it locks the rotor into the stator, in which case it’s game over, because the tide is already reversing, and neither the multinationals, nor their governments, can steer the ship, which is now painfully obvious.

A constitutional attack on one individual is a constitutional attack on all individuals, leaving the system rudderless, which can only have one outcome, a party on the Titanic. TBTF fails every time, because it has no navigators. It may only accelerate or brake, and it accelerates to create the illusion of progress, while its passengers get drunk, to convince themselves of the illusion. No one sees the iceberg, except everyone that got off the ship.

There are an infinite number of paths between control of energy distribution and independent micro-generation. Don’t chase the electron. As a practitioner, choose any path forward, consistent with your talent, which does not rule out the future. As an investor, choose a portfolio of unrelated paths forward that do not rule out the future. Begin with the parameters preventing current participants and organizations from resetting the system, and identify community parameters that provide entry and exit paths, through gravity, and the prerequisite electrons will pass through of their own accord. The electrons must gather the energy to be emitted, and the universe neither creates, nor destroys energy.

For the multinational, nature is a threat to be mitigated, which must be balanced by small business, which views nature as an opportunity, and these physical circuits must be isolated, by a transitional looking glass, between communities and multinationals. Communities cannot be simple extensions of federal and state law, subject to multinational control.

Individuals must build the D/A in their private lives. No D/A, no A/D, no digital bus, the digital economy locks up and crashes. The multinationals cannot maintain individual-specific databases to reinforce past behavior and expect the system not to lock up. The analog economy awaits these faults to be cleared or for the digital economy to blow up.

Corporations cannot be allowed to employ government to invade individual privacy; it is the responsibility of the community to maintain that firewall, to protect individual liberty. The global family law certification system violates the purely municipal/community interest. Big Government and Big Corporation cannot be entrusted with individual liberty; it is in their own self-destructive interest to preserve the status quo at the cost of extinguishing individual liberty. Absent a pathway to community evolution, the entire global economy will crash.

Conclusion

You may want to take a look at TriCities, Washington, not necessarily as a direct investment, but to see all the variables in operation at the event horizon. It has all the prerequisite parameters for community development, it’s thoroughly addicted to feeding the multinationals, all the gates are closed, and the consultants still believe OPI, other people’s ideas, will solve the problem.

Electron behavior is not nearly so simple as presented in chemistry books. OPI is a third derivative, which acts as a differential inhibitor. Obviously, the multinational consultants failed to learn their chemistry. There is no substitute for a thinking human being.

The point of employing parents and children in your program is to get unexpected results. The pearl is a result of aggravation. Pete and repeat, absent the origin of differentiation, can only result in cancerous replication. Net individual liberty, which forms the D/A in unexpected ways across the parallels, serves as the looking glass that isolates the black hole / gravity dc bus circuit.

Absent a per/unit weaker, but much larger, community force, the multinationals will be consumed by the same digital technology that is now consuming Wall Street, which it employed to consume the global economy. Gravity is a digital circuit, which employs algebraic reduction to produce torque, consuming everything that is not unique, to pick the load.

Absent isolated connection to the analog economy for balanced growth, LRA or FLA goes BOOM or POOF. Bomb, darkness, or sun, the kernel programmers can build any size wave with any number of surfaces, but it is up to you to decide where you want to take it, in the implementation. The analog system is always two steps ahead of the digital system.

The debt load to be picked is $500T. If it is not picked, the multinationals will crash. Given how that debt load was created, what would you charge to make the pick?

I make money every week trading against these pantywaist HFT computer hackers. Whats the big deal?

The big deal actually is that the exchanges facilitate, ancourage and profit from the gaming of latency in their electronic trading systems. Let it never be said that they are unconcerned about their customer's yachts.